KUALA LUMPUR (Feb 24): The Federal Government’s debt is estimated to reach around 62% of gross domestic products (GDP) by end-2023, up from 60.4% or RM1.08 trillion last year, as Putrajaya continues to borrow for the financing of development programmes and projects under the 12th Malaysia Plan, and also as the redemption of 1Malaysia Development Bhd (1MDB) bonds mature in March. 

Borrowings will be primarily sourced from the domestic market, given the sufficient liquidity, the government said in its revised 2023 Economic & Fiscal Outlook report.   

The report also indicated that Putrajaya intends to maintain the current 65% statutory debt ceiling, which was raised from 55% of GDP during the pandemic period. 

“Considering the debt-scarring effect from the Covid-19 crisis, as well as continued requirement post-pandemic recovery programmes and projects, the Federal Government has maintained the 65% of GDP statutory limit by gazetting Loan (Local) (Statutory Ceiling for Borrowing) and Government Funding (Statutory Ceiling of Moneys Received) Order 2022 [P.U. (A) 399/2022], which came into operation on Jan 1, 2023,” it said.

Nonetheless, the government pledges that it is “committed to manage its indebtedness level in the medium term, while ensuring sustainable growth”.   

“The government aims to improve debt affordability and sustainability in the medium- and long term, in line with the fiscal consolidation trajectory supported by fiscal reform initiatives,” it said. 

Having said that, the federal government is projecting an increase in debt service charges (DSC) to RM46.1 billion this year, from RM41.27 billion or 14% of revenue of RM294.36 billion in 2022. 

Based on the projected revenue of RM291.5 billion for 2023, the government’s DSC is estimated to be at RM46.1 billion or 15.8% of revenue. 

“The government is constitutionally obligated to serve the DSC ahead of spending on other expenses, as stipulated under the Federal Constitution,” the report stated.

DSC stood at RM38.1 billion or 16.3% of government revenue in 2021. 

Meanwhile, debt exposure to 1MDB, which is not included in the federal government’s debt, stood at RM18.2 billion as at end-2022, down from RM32.1 billion at end-2021, following the debt redemption of both 1MDB Energy Ltd in May 2022 and 1MDB Energy (Langat) Ltd in October 2022. 

These redemptions were done by utilising funds from the Assets Recovery Trust Account, whose balance is estimated at RM1.9 billion, and will be utilised to cover project interests for remaining debt principals. 

There will be another redemption of US$3 billion (about RM13.2 billion) due in March this year for the 1MDB Global Investment Ltd bond.   

The government is allocating RM97 billion for its development expenditure (DE) under Budget 2023, of which US$3 billion is allocated for redemption of the 1MDB Global Investment Ltd bond.   

Subsequent to the March redemption, the government’s 1MDB debt exposure will be left with a RM5.0 billion sukuk, which is due in May 2039. 

For more Revised Economic Report 2022/2023 stories, click here.